Specialist
Former executive at Central Credit Audit LLC
Agenda
- Impact of macroeconomic factors on US third-party logistics’ collections cycles, including an increase in delinquent accounts
- Secular trends in working capital cycles and outlook
- Outlook on credit losses and receivables health amid volume growth
Questions
1.
What are your thoughts and outlook regarding the impact of inflation and signs of slowing economic growth on collection cycles, receivables health and credit quality for the US third-party logistics industry?
2.
How do you expect third-party logistics players to operate on the collections and credit extension side? Do you expect customer demand to shorten the payment cycles, and would you expect third-party logistics to try and reduce their credit exposures?
3.
How should we assess the drying up of credit between third-party logistics and their customers? What might it mean for overall volumes? How is the overall order flow impacted when third-party logistics start being careful about which customers they extend credit or shorten credit to?
4.
You mentioned a growing number of delinquent accounts that are in the 90-day-plus category, which is starting to look similar to 2008-09. What numbers are you seeing? Can you give any indication of what that 90-day-plus looks like, and at what point would you expect it to become a problem?
5.
You mentioned the lack of adherence seen historically in the third-party logistics space around internal credit extension systems. Where does that come from? Is that a competitive pressure because there are so many third-party logistics players – everyone’s vying for business and trying to get that high growth we’ve seen? Is that the key factor why some credit extension is done in a less-than prudent fashion?
6.
You said a serious, potential, short-term risk is if we start seeing some of the 90-day accounts go out of business and so on. What is your view on strength of claims of some of these receivables? If a customer goes out of business, could third-party logistics reasonably expect to collect on these, or does that flow straight to bad debt?
7.
You highlighted 90-day-plus as a warning sign, but at what point do we consider it dead in the water and bad debt? Would it be when it hits the 180-day mark?
8.
How might third-party logistics players handle their payables cycles in a recessionary or inflationary cycle? Players such as FedEx or FedEx Ground have a lot of contractors and fleet-owners in the mix, so how would they potentially push out payments?
9.
We’re recently seeing FedEx Ground contractors expressing unrest, as well as strike-risk among railroad workers. If third-party logistics customers are demanding an extension of the cycle to continue doing business, can a third-party logistics player in this industry currently pass that down to contractors and its supply chain? Or will it be a cycle crunch, at some point, on that working capital cycle?
10.
How should we think about the degree of fragmentation between a third-party logistics’ customer base and its supply chain? How much easier does that make it to pass on any working capital cycle extensions? If I have a fragmented customer base vs a concentrated supply chain, am I more likely to pass on that extension, or would it be the other way round? Do you have a view on that?
11.
Do you think, net-net, the working capital cycles are going to extend for third-party logistics?
12.
What are your thoughts on whether we will see 15% growth in the 90-day-plus category across the industry?
13.
Some players are hiking up prices in response to volume growth slowdown. Do you think that is the optimal way to treat the situation? Was FedEx raising its shipping rates a smart reaction to recent slowdown in volumes?
14.
What does the credit process look like for third-party logistics, starting with the lead generation process and going through to the extension of credit?
15.
When we talk about collection cycles, credit quality and credit terms, is there a major difference across the various markets in terms of truckload vs less-than-truckload vs courier and so on?
16.
What does the average working capital cycle look like for third-party logistics today vs historically? How has it been trending? You said net 15. Is that the benchmark?
17.
Outside of external factors – perhaps the market recovery coming out of 2008-09 and so on – what else might have led to the tightening of the net working capital cycle for third-party logistics? Were there any changes in industry best practices, any innovation or a major agnostic change?
18.
Do e-commerce clients get a better deal from third-party logistics on payment terms and credit extension, given it’s a high-volume segment with significant growth?
19.
Third-party logistics compete heavily for volume allocations from e-commerce platforms, and we saw that the platforms were also looking to in-house their logistics functions. Have these two factors impacted third-party logistics’ credit quality and collections efficiency within the e-commerce segment?
20.
Another unique element about e-commerce is how volumes spike during the e-commerce campaign season. How do working capital cycles change during these periods for third-party logistics that have e-commerce allocation?
21.
We’ve seen a lot of third-party logistics experiencing major growth with the past cycle, especially during coronavirus, and credit losses appeared to be low. What’s your perspective on how third-party logistics keep credit losses low as they scale? You yourself grew with a third-party logistics that went from USD 1m sales to over USD 1bn.
22.
In terms of third-party logistics that experience high growth and see sales grow above trend rate, what significant mistakes or risks typically arise in terms of their ability to keep credit losses low? What are the biggest issues here?
23.
Which third-party logistics players are best-in-class from a collections and credit losses standpoint? You mentioned bigger players such as FedEx having 3-5% credit loss. Who is strong vs weak when it comes to these practices?
24.
Is there a customer exposure that typically lends itself to worse credit losses, going back to truckload vs less-than-truckload vs parcel?
25.
When considering the linkages across different modes of transport and how players such as JB Hunt or CH Robinson go through different modems, is that a credit loss risk in and of itself, having to pay different carriers across varied transport modems?
26.
How should we think about account size and credit loss? If an account is bigger, does it present a greater credit loss risk just because of its size, meaning smaller accounts are better?
27.
What is the credit loss factor or risk associated with SMBs and smaller merchant account sizes vs players with larger enterprise accounts? Presumably the larger enterprise customers are a safer bet from a credit risk standpoint, but do you have a different view?
